theme 3 key words Flashcards
allocative efficiency
when resources are allocated to the best interests of society, when there is maximum social welfare and maximum utility; P=MC
asymmetric information
where one party has more information than the other, leading to market failure and causing problems for regulators
average cost/average total cost (AC/ATC)
The cost of production per unit
total costs/
quantity produced
average revenue (AR)
The price each unit is sold for
TR
quantity sold
bilateral monopoly
where there is only one buyer and one seller in the market
cartels
a formal collusive agreement where firms enter into an agreement to mutually set prices
collusion
occurs when firms agree to work together, for example by setting a price or fixing the quantity they produce
competition policy
government action to increase competition in markets
competitive tendering
when the government contracts out the provision of a good or service and invites firms to bid for the contract
conglomerate integration
the merger of firms with no common connection
constant returns to scale
output increases by the same proportion that the inputs increase by
decreasing returns to scale
an increase in inputs by a certain proportion will lead to output increasing by a smaller proportion
demergers
a single business is broken into two or more businesses to operate on their own, to be sold or to be dissolved
deregulation
the removal of legal barriers to allow private enterprises to compete in a previously protected market
derived demand
the demand for one good is linked to the demand for a related good
diminishing marginal productivity
if a variable factor is increased when another factor is fixed, there will come a point when each extra unit of the variable factor will produce less extra output than the previous unit; after a certain point, marginal output falls
diseconomies of scale
the disadvantages that arise in large businesses that reduce efficiency and cause average costs to rise
divorce of ownership from control
firms are owned by shareholders, who have little say in the day to day running of the business, and controlled by managers; this leads to the principal-agent problem
dynamic efficiency
efficiency in the long run; concerned with new technology and increases in productivity which causes efficiency to increase over a period of time
economies of scale
the advantages of large scale production that enable a large business to produce at a lower average cost than a smaller business
external economies of scale
an advantage which arises from the growth of the industry within which the firm operates, independent of the firm itself
fixed cost
costs which do not vary with output
for-profit business
a business whose main aim is to make money
game theory
used to predict the outcome of a decision made by one firm, when it has incomplete information about the other firm
geographical mobility of labour
the ease and speed at which labour can move from one area to another
horizontal integration
the merger of firms in the same industry at the same stage of production
increasing returns to scale
an increase in inputs by a certain proportion will lead to an increase in output by a larger proportion
interdependent
the actions of one firm directly affects another firm
1.
internal economies of
scale
an advantage that a firm is able to enjoy because of growth in the firm, independent of anything happening to other firms or the industry in general
limit pricing
when firms set prices low in order to prevent new entrants; used in contestable markets